Huakong SEG 2025 Annual Report Analysis: Net profit attributable to parent company drops 713.52% year-on-year, operating cash flow increases by 45.32%

Core Profitability Indicators: Turning from Profit to Loss, Deducting Non-recurring Items to Reduce Losses

In 2025, Huakong SEG (rights protection) core profitability indicators experienced significant fluctuations, with net profit attributable to shareholders turning from profit to loss, while net profit excluding non-recurring items achieved a reduction in losses:

• Operating Revenue: In 2025, revenue reached 832 million yuan, down 24.69% year-over-year, mainly due to scale reduction in trading business (revenue share from 59.68% to 49.32%) and a 30.17% decline in software and IT services revenue, with only environmental protection industry revenue increasing by 18.40% year-over-year.
• Net Profit Attributable to Shareholders: shifted from a profit of 17.03 million yuan last year to a loss of 105 million yuan, a sharp decrease of 713.52%, mainly because the company, based on prudence, made a 50 million yuan estimated liability for a contractual dispute related to the lithium-ion battery negative electrode material project in Qitaihe City, significantly increasing non-operating expenses.
• Net Profit Excluding Non-recurring Items: loss of 54.89 million yuan, reduced by 42.49 million yuan from last year, a decrease of 43.63%, indicating a narrowing of core business losses.
• Earnings per Share: basic earnings per share changed from 0.0169 yuan/share to -0.1038 yuan/share, and earnings per share excluding non-recurring items narrowed from -0.0967 yuan/share to -0.0545 yuan/share, consistent with the trend in net profit.

Cost Control: Multiple expenses decrease, financial expenses slightly increase

In 2025, the company’s various expenses declined to different degrees, with only financial expenses slightly rising:

Total expenses amounted to 101 million yuan, down 18.55% from 124 million yuan last year, partially offsetting the impact of revenue decline on profit.

R&D Investment: Expansion of personnel scale, decrease in capitalization ratio

R&D Personnel Status

In 2025, the company’s R&D personnel expanded, with a trend toward younger structure:

The number of R&D personnel increased by 13 year-over-year, with the proportion rising to 20.42%. The number of personnel with undergraduate or below education increased significantly, and those under 30 doubled, indicating a younger R&D team and strengthened foundational R&D capacity.

R&D Investment Details

The company’s annual R&D expenditure was 17.34 million yuan, down 36.24% year-over-year, with a significant decrease in capitalization ratio:

The decline in R&D investment mainly results from a reduction in large capitalized projects last year (such as platform upgrades), with many projects in 2025 being completed or in implementation stages, leading to a sharp decrease in capitalized expenses and more expenses being recognized directly.

Cash Flow: Significant Increase in Operating Cash Flow, Still Facing Financing Pressure

In 2025, the company’s cash flow structure showed improved operating cash flow, expanded outflows in investing cash flow, and a narrowed net outflow in financing cash flow:

• Operating Cash Flow: net 313M yuan, up 45.32% year-over-year, mainly due to funds from Yunshuzhi being consolidated after acquisition, with operating outflows decreasing by 6.96%, indicating improved cash flow quality.
• Investing Cash Flow: net outflow of 12.32 million yuan, increased by 138.79%, mainly used for the first installment of 13 million yuan for the Yunshuzhi 40% equity purchase and other asset purchases.
• Financing Cash Flow: net outflow of 367M yuan, narrowed by 1.77%, as last year’s high outflows due to debt repayment were reduced; although inflows decreased by 76.91%, outflows fell by 45.07%, slightly reducing net outflow.

Risk Warnings: Five Major Risks to Watch

2. PPP Project Operation Risks: The company’s PPP projects have a high proportion, characterized by large upfront investments and long recovery periods. If local government finances deteriorate or performance capabilities decline, project revenue collection and cash flow safety could be affected. Currently, the Weinan project is close to termination and exit, while Suining and Yuxi projects are still progressing settlement and funding applications.
3. Market Competition Risks: Competition is fierce across all business segments. Although environmental protection revenue grew, its overall scale remains small. The planning and design segment has insufficient new contracts, and after reducing trading business, new business needs to fill the gap. Increased industry competition may further squeeze profitability.
4. Policy Risks: Stricter environmental regulation standards and tighter capital market supervision may increase compliance costs and cause delays in business adjustments if the company fails to keep pace with policy changes.
5. Litigation and Arbitration Risks: The company faces multiple lawsuits and arbitration cases. Some cases have made progress (such as arbitration rulings for Qitaihe project, and rejection of re-trial for Tongfang investment), but others are still under review, potentially impacting reputation and finances.
6. Peer Competition Risks: The indirect controlling shareholder, Shanxi Construction Investment, has postponed its non-competition commitment until July 2028. If commitments are not fulfilled on time, it could affect the company’s business layout and the interests of minority shareholders.

Executive Compensation: Stable Core Management, High Severance for Departed Executives

In 2025, the core management’s compensation was as follows:

• Chairman Lang Yongqiang and Vice Chairman Zhou Yang, among others, receive remuneration from related parties and do not draw salaries from the company.
• General Manager Chai Hongjie’s salary is 782.1k yuan, the highest among executives; Vice General Manager Yang Zhiguo and CFO Gao Ying each earn over 560k yuan, maintaining stable core management compensation.
• Former executives Pan Jinghui and Ding Qin received a total of 4.3786 million yuan in performance, deferred performance, and severance payments, accounting for a relatively high proportion of total executive compensation.

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